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Macy’s CEO: Martha Stewart Made ‘a Mistake’

CNBC

Off the Cuff•April 22, 2013

In the latest chapter of the year-long legal battle involving Macy’s, J.C.Penney, and Martha Stewart Living Omnimedia, a New York State Supreme court judge ruled earlier this month that J.C. Penney can continue to sell Martha Stewart products under a “JCP Everyday” label – at least until an appeal by Macy’s is decided.

Macy’s claims that under a 2006 agreement reached with Martha Stewart Omnimedia, the retail giant retains the exclusive right to sell Stewart’s goods. When J.C.Penney, the embattled department store chain, announced in December 2011 that it had formed a partnership with Martha Stewart Living Omnimedia, Macy’s sued both companies. Martha Stewart is the top-selling home brand at Macy’s.

“Martha and I we were business partners and we were friends outside of the business, so it's really disappointing how the disagreement occurred,” Terry Lundgren, the chairman and CEO of Macy’s told “Off The Cuff.” “You make an agreement with somebody, you think you know them, you have an understanding, and then they go against that decision. You just say, ‘I wasn't expecting that.’ So yeah, that definitely bothered me.”

He continued, “I think she wanted to either personally make more money, or the company wanted to grow the business somehow. The mistake was that we were the best performing business in their company. And for them to jeopardize that was a mistake on their part. They probably should have focused on other categories that did not conflict with the product-exclusive arrangement we had. So I think that's where they went wrong.”

J.C. Penney’s board ousted the department store chain’s CEO Ron Johnson in early April. The retailer suffered a $4 billion sales decline under Johnson. Johnson had testified in the case that Martha Stewart was a key component in his efforts to reinvent the troubled retailer.

“I think that J.C. Penney probably made some mistakes by just not focusing on their customer, and who their customer was,” Lundgren said. “They wanted to try a new idea and a new thought. You can do that with a startup company. But when you already have an established customer base and you want to change that customer base, I think you need permission from the customer first. It doesn't appear that they got that permission.”

Lundgren, one of the longest-tenured CEO’s in the department store industry, has helmed Macy’s since 2003. Last year Macy’s gave him an $11.3 million pay package – down 22 percent from 2011. “I took a 22 percent cut in pay this year because I set very high goals for our company, and the organization performed brilliantly. We had a 20 percent increase in earnings, we grew in same-store sales by over a billion dollars this past year,” Lundgren said, but added that “the goals that I set for myself were even higher than that. And so we didn't achieve all of the goals that were set, and so I deserve, therefore, to not be paid the amount that I was paid last year.”

Lundgren went into retail in 1975, after he left college. “I had very shallow goals at that point in time. It was repaying my college loan and to pay for my car. The reason why I actually got into that business, stayed in that business was because of the time people took with me. They sort of grabbed a hold of me and mentored me over time. I remembered that, and I give that time back today.”

Lundgren helps support the study of retailing and consumer science through The Terry J. Lundgren Center for Retailing at his alma mater, The University of Arizona. He said he holds monthly mentoring breakfasts for Macy’s younger employees, but it’s a two way street: “In many cases, they're educating me.”

As the CEO of a department store chain, he said it’s important that he have a sense of fashion. “It is a little bit of a joke at my home, but my closet is significantly larger than my wife's, and we do get in little arguments about that,” he laughed.

They didn’t argue, however, over the dress his wife wore to their wedding. “I designed my wife's wedding dress but, keep in mind that there was somebody standing right next to me. Her name was Vera Wang. She wasn't going to let me get too far off track,” he said. “We did blindfold my wife throughout the five fittings. So she never saw the dress until the day of the wedding. I did take a little bit of a gulp when she finally said, ‘It's beautiful.’”

The impeccably dressed Lundgren made an impression even as a college kid – when he tagged along with a friend to a 1972 casting call for an iconic game show. “My college roommate was from New York and he was desperate to go on ‘The Dating Game,’” he recalled. The producers persuaded him to audition too, he said. “I went in, I interviewed, I got selected, he didn't. It was really embarrassing. Long story short, I went on the program, I was bachelor number two, and I won. I won a date.”